has economic well-being improved in western nations? lars osberg department of economics, dalhousie...
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Has Economic Well-being improved in Western
Nations?
Lars OsbergDepartment of Economics, Dalhousie University
Halifax, Nova Scotia
Presentation at Wuhan University, November 24, 2001.
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Recent Trends Standard Indicators
– GDP per capita up, more so in USA– Hourly wages up, but not much– Employment up, especially in USA
So What ? – What is the connection to Economic Well-
being ?• GDP excludes leisure, environment & more• Wage = price of labour ; potential consumption?• Unemployment = unused labour; insecurity ??
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Questions Has economic well being increased or
decreased ?
How “productive” is economic growth for economic well-being?
What should we do differently, if well-being is actually what we want to improve ?
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What is Economic Well-Being?
Economic Well-Being < Well-Being Economic Well-Being > GDP Economic output > Marketed output
– GDP omits value household labor GDP omits many sources utility
– value of leisure, length life, etc. GDP includes “regrettable expenditures”
– Costs of pollution, crime, etc
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Human Well-being
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Economic Well-being
Economic Well-being
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Well-being and GDP
GDP
Economic Well-being
GDP
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“Social regrettables”
GDP
Economic Well-being
GDP
“Social regrettables”
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GDP per capita GDP rigorously standardized across countries
(SNA) Strong Implicit assumptions when used as
measure of economic well-being– aggregate share of income devoted to accumulation (including
value of unpriced environmental assets) automatically optimal– poverty, inequality & economic insecurity do not matter– changes in leisure time, length of life, family size, costs of
commuting, pollution & crime - all irrelevant
poor match to popular perceptions of trends in economic well-being
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ECONOMIC WELL-BEING= a1 [ CONSUMPTION]+ a2 [TOTAL WEALTH]+ a3 [ DISTRIBUTION]+ a4 [INSECURITY]
DIFFERENT VALUES WILL IMPLY DIFFERENT WEIGHTS
Setting weight equal to Zero is a (strong) value choice
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Model
Consumption flows
Stocks of wealth
Economic equality
Economic security
EconomicWell-Being
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Average Consumption Flows $ Marketed real consumption per capita
– Adjustments • value of increased longevity• reduced economies of scale in household consumption• changes in working hours – leisure
Government services– provision of non-marketed or heavily subsidized
services• includes defense and capital consumption allowances
– excludes debt service charges and transfer payments
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Figure 5 Trends in Average Consumption in the USA and Canada
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
Canada
United States
Source:see appendix tables A1
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Wealth Stocks, Sustainability and Intergenerational Bequest $
Physical capital stock Research and development capital stock Value of natural resource stocks
– price + quantity change Stocks of human capital (@ cost education) Net foreign indebtedness (-) State of environment and national heritage
(degradation -)
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Figure 6Wealth Accumulation Trends in the USA and Canada
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
Canada
United States
Source: see appendix table A1
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Distribution
Inequality– Gini coefficient
• After-tax & transfer household income• Equivalence scale =
Poverty– Sen-Shorrocks-Thon measure
• Rate• Average poverty gap ratio• Intensity = rate x gap
familysize
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“Economic Security” Risk income loss due to unemployment
– changes in employment rate x UI coverage x UI replacement rate
Risk of illness– medical expenses as share of disposable income
Risk of single parent poverty– poverty rate & gap for single women with children
– divorce rate of legally married couples
Risk of poverty in old age– chance x depth of elderly poverty
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Economic Security weights for 1997
Figure 8 Trends in Economic Security
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
Canada
United States
Source: see appendix table A1
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How different is trend in Economic Well Being &GDP?
Trend in Economic Well Being depends partly on how heavily current consumption is weighted compared to accumulation, inequality & insecurity
Experiment with two sets weights– Heavily weighted to consumption (70%)– Equal weighting all components (25%)
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Australia
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
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United Kingdom
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
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United States
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
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Canada
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
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Sweden
0.85
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
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Policy Implications ? Much less gain in economic well-being than
in real GDP per capita 1970-99 Major reason has been growth in inequality
& insecurity – Reducing Inequality & Insecurity has been the
major objective of social programmes – de-emphasized in recent years
Social Policy Design should aim at increasing Well-Being
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The role of the natural environment
Natural Capital
GDPEWB
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Physical Investment
Natural Capital
Produced Capital
GDPEWB
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Human and Social Capabilities
Natural Capital
GDP
Human and Social Capabilities
Produced capital
EWB
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The role of knowledge/skills
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB
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The role of networks/social norms
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB
Social capital
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A DIGRESSION
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Human Capital
“The knowledge, skills, competencies and
attributes embodied in individuals which
facilitate the creation of personal, social
and economic well-being”
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Social Capital
“Networks together with shared norms,
values and understandings which
facilitate co-operation within or among
groups”
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Close ties between human and social capital
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB Social
capital
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The role of institutions
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB Social
capital
Political, institutional and legal arrangements
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Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB Social
capital
Political, institutional and legal arrangements
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Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB Social
capital
Political, institutional and legal arrangements